Islamic Capital Markets: Theory and Practice

Glossary of Arabic Terms

Al ghonm bil ghorm. The principle that one is entitled to a gain only if one agrees to bear the responsibility for the loss. Earning profit is legitimized only by risk sharing and engaging in an economic venture. This provides the rationale and the principle of profit sharing in Shirkah (partnership) arrangements.

Arbun (also Arboon). Earnest money payment. It is a deposit toward the purchase of an item. If the buyer completes the sale transaction, the earnest money is applied to the purchase price. If the buyer does not fulfill his or her obligations under the contract, the arbun is forfeited.

Bai. Sale, trade, or transaction. Stands for sale or contract of sale. It is often used as a prefix in referring to different sales-based modes of Islamic finance, such as murabaha, istisna’a, and salam.

Bai-al-inhah. Buying an object for cash and then selling it for a higher price to the same party, whose payment is deferred so that the purchase and sale of the object serves as a ruse for lending on interest. It equates to a double sale by which the borrower and the lender sell and then resell an object between them, once for cash and once for a higher price on credit, with the net result of a loan with interest. Used by some Islamic banks, it refers to the selling of an asset to the customer through deferred payments. At a later date, the bank will repurchase the asset and pay the client in cash terms.

Bai-muajjal. Deferred payment contract; a contract involving ...